Wave Trading Forex

FX Investment Strategy

After many years of research we have designed our proprietary trading strategy, designed with the sole purpose of turning small investments into large sums of money by meeting the risk reward criteria outlined in part 1 of this explanation We call it the Plummer Wave and here we introduce its key concepts.

The Plummer Wave strategy has 3 elements, each of these elements must agree before a trade is taken and now we present a small article for each of these elements.The elements of the plan are:-

Technical patterns, using identifiable patterns in price to identify entry and exit points for trades.

Fundamentals. The economics of the situation and its effect on the price of assets.

Correlation. A Probabalistic graphical model that links the all the different assets together as one market

Building a trading plan

​All trading plans require a few assumptions about the way markets operate!

​The trading plan itself is a method to make money out of the market by exploiting the nature of the initial assumptions. The fewer assumptions the better.

​The assumptions or Beliefs for this system are as follows.1. Markets Trend2. The trend is more likely to continue than to end3. The trend can be modelled as a series of connected waves.4. The trend is a reflection of the economic situation5. Correlated assets follow the same cycles

Technical Trading: RetiredearlyFX are wave traders

To meet our trade targets (5% risk with 5:1 risk reward) we need trades that can run along way, we are forced to be trend traders, trying to hop onto the back of a trend and ride it for an extended period.RetiredearlyFX are buy the dip traders, they trade in the direction of the prevailing trend hoping to open a position at or near a short-term low and then ride the trend higher for a nice profit.

This is an image of the EURUSD and it shows the areas a swing trader would like to buy. Each green area represents the perfect buy into this ongoing uptrend. The job of a swing trader can be reduced to two questions

What is the prevailing trend?

When do I buy the dip?

You must always remember that we cannot be right every time. No system can tell the future but this one puts the odds in your favour as long as you accept the initial assumptions and are prepared to be patient and wait for the opportunity to trade then you will make money using this type system.

Buy the Dips

The entire technical system is condensed into this one image, the blue arrows show the market trending upwards and the circle is the area we want to buy it. Put simply we will buy the dips and continue to buy the dips in a market until the Trend higher changes. To understand the system memorise this image.

​It is natural that swing traders, those following the waves of the market move towards Wave analysis, they view the uptrend as a series of waves higher then corrections lower and it is these corrections they wish to buy. The most famous wave theory is Elliott Wave first put forward buy R.N. Elliott in the 1930’s, Elliott Wave Theory takes the view that price moves higher in a series of 5 waves. Waves 1, 3 and 5 go higher in the direction of the trend and waves 2 and 4 are the corrective waves lower.

The waves are related closely to people’s emotions remember the price of an asset is a reflection of the price people are prepared to buy it for and people are emotional they get greedy when they think they are going to make money and they get scared when they think they will lose money (especially if their job depends on it!),

Over the years the ideas put forward by R.N.Elliott have been studied, improved and added to. A robust body of research now exists that allows people to design their own trading plans based on this excellent idea. The difficult part is it takes many years to master this trading technique.Read an excellent review of Elliot wave theory

Tony Plummer the English economist, and one of the countries greatest financial forecasters put forward a different set of wave ideas which he called the Price Pulse it builds on and improves the work of Elliott allowing a deeper understanding of the emotions at play in the market.

Plummer also suggested the laws of 3 and 7 which form the basis of our trade timing. Remember we are trying to predict when is the right time to buy the dip.The price pulse and the laws of 3 and 7 can be found in the books by Tony Plummer ('forecasting financial markets' and 'The Law of Vibration')

At RetiredearlyFX we combine both of these wave theories and mould them together as the Technical part of our trading system.

Technicals are only part of the plan, they tell us when to trade, they inform us of what the market is thinking but they do not tell us what to trade. That comes from the Economic analysis often called the Fundamentals

Deciding the Trend

Deciding the trend is really important, it is rule 1 “Trade in the direction of the trend at higher degree”. For the EURUSD chart above (which is 4 hour) we would only consider buying there are no circumstance we would sell with that technical chart.

​This daily chart for the EURUSD shows a series of Higher Highs (HH) and Higher Lows (HL) throughout the whole of 2017. That is a strong uptrend which means I will only buy this pair and I will keep buying pullbacks until the sequence of HH and HL breaks and for that to happen it will need to get all the way back to 1.11 ​to register a lower low.

So this pair is trending higher, we interpret that as a market view "The market thinks the EURUSD should go up in price"

You can see from the chart that the price has started to pullback, are we interested in buying it? that depends on the economics of the situation and that is the next thing we look at.

RetiredearlyFX is a trading name of the investment company Bagehotsway.We are not a regulated company but we only sell regulated products.We are not authorised to give investment advice.We believe all figures quoted to be accurate but past performance in no way guarantees future performanceTrading FX is high risk and not suitable for everyone.